First off, we would like to wish you and your clients a Happy and Prosperous 2018!
As we are all aware and unlike our neighbours to the South, combined top Federal and Provincial Income Tax Rates in Canada are near to or over 50%. In addition, the 2018 Federal Budget may penalize many taxpayers with Businesses or Professional Corporations (PCs).
There are very few arrangements that remain which can assist such taxpayers in mitigating their taxes. Here at GBL, we have two such arrangements that can help: The Individual Pension Plan (IPP) and the Retirement Compensation Arrangement (RCA); both of which are available to taxpayers in receipt of T4 income who have Businesses or PCs.
The Individual Pension Plan (IPP)
The IPP is available to defer taxable income for the taxpayer, and in many cases the spouse and adult children employed by the taxpayer, and reduces the corporation’s tax bill. It has significantly higher contribution amounts versus a typically RRSP and investment income earned within the IPP is also tax deferred until paid from the Plan.
The Retirement Compensation Arrangement (RCA)
An RCA may be set up in conjunction with an IPP or on a standalone basis. Contribution limits are generally much greater than those for IPPs. In return, 50% of contributions and net taxable investment earnings are held by CRA in a non-interest bearing Refundable Tax Account (RTA). The benefit of this is that the RCA provides powerful tax planning opportunities that give the business owner more control over their tax rate.
The IPP and RCA are great tax strategies that can be used to mitigate current taxes while offsetting the potential increase in taxes from the upcoming government changes; and both are considered two of the last lines of defense for Business and PC owners. Contact us for more information on IPPs and RCAs. GBL’s team will be glad to help.
By Gordon Lang, FCIA, Founder, GBL
Founded in 1995, GBL is a leading provider of retirement and health solutions for business owners across Canada. For more information on our services and strategies contact: email: [email protected] Phone: Eastern Canada 1-416-941-9829 Western Canada 1-403-249-1820